Soon. In the fast lane, aston martin plans a fiveyear trade and investment drive in china worth over 600 Million Pounds. We will speak to the ceo, next. We are less than a halfhour from the start of european trading. Take a look at futures right now. We are seeing gains across the board on the major indexes with the exception of the ibex sorry, the ftse mib and stockholm. Here on the board, ftse futures gaining 0. 4 , dax futures up 0. 5 . Lets start with some of the earnings this morning. Roche expects sales growth to slow this year. It is counting on new drugs in the pipeline to offset revenue losses in its oncology medicine. Joining us from switzerland, the ceo of roche. Welcome to the program. Thanks for joining us. About 2018 as kind of the year of the cliff edge for drugmakers, for roche especially. How well do you think these new drugs in things like hemophilia are going to offset the loss of your cancer drugs . Im very confident. If you look at the growth in 2017, the vast majority of growth, over two thirds of the growth, stems from recently launched medicines. We will see these medicines continue to grow into 2018. This will allow us to compensate. Matt in hemophilia, theres a renewed interest in the industry. ,anofi, with the acquisition definitely shows that. Do you view that transaction as possibly a threat . Term, it always depends on the quality of the clinical data. For now, we are confident about the potential. This is the first treatment after 20 years which will fundamentally reset the standard of care, how patients in hemophilia will be treated, a significant reduction, much more convenient administration. It has now been approved in the United States. At the end of last year, we got it will be approved soon in europe. We are very bullish about the potential. Matt you mentioned the u. S. We recently saw this teaming up between amazon Ceo Jeff Bezos as well as jamie dimon and others to try to enter the health care industry, lower prices. Theyve transformed industries before amazon. How do you think this is going to change the landscape . Concerned,s roche is we are focused on innovative medicine. Exposed to less price pressure due to the demand by physicians and patients for our medicines. I would not see any change in the dynamics and the fundamentals for our u. S. Business Going Forward. Matt having just moved from the u. S. To europe, it is clear to me that drug prices are so much higher in america for the same products. Think is the main reason for that . Is it fda approval that is the problem . If you look at the timelines, ahead. Ly the fda is even other Health Care Authorities around the world are catching up with the fda. Initiatives ofhe the fda to further accelerate approval timelines. That is the benefit of patients who will receive such innovative medicines at the earlier stage. And of course it helps us to develop our business. See very good support of the fda, in the interest of patients, but also helping us as an industry. Matt we talked about other Companies Making targeted acquisitions. You made a targeted deal. Do you see any more acquisitions like that, and if so, which directions are you looking . We will continue to look for opportunities, products which , like anranchises acquisition in the oncology space, or technologies. M a strategy as such. Continued look out for opportunities. Matt thanks for your time. Really appreciate it. Severin schwan, roche ceo, on earnings day. Lets get to another industry leader. Prime minister theresa may arrived in china yesterday, leading the largest business delegation her government has taken overseas, 50 Business Leaders from sectors including Financial Services, health care, energy, and motors. The luxury carmaker has announced a deal worth about 600 Million Pounds. Joining us from beijing is andy palmer, the ceo of aston martin. Talk to me first about this deal with china. What does it mean for Aston Martins growth . Big Growth Engine for us, particularly within the next year or so. Suv,ll be introducing an and that is a big part of our growth strategy. Grew almostear 100 . We wanted to continue that momentum. We want to invest in this market. Announced 620 Million Pounds of trade and investment. You aboutme ask theresa mays visit and how that is going. How do you see the politics of this playing out . How do you see the Prime Minister doing there . She appears to be doing well from what i can see, reading the body language and listening to the speeches. World, one hast some trade relations with countries other than the e. U. Block. It is going to be very important to the u. K. , and the more places we can have free trade with, the better for us. I assume that cuts both ways. We are still part of the e. U. As the united kingdom, but theresa foris readying the country i guess one of the possible scenarios, which is basically the opportunity to make trade deals with places like the United States, china, and other places. She certainly working hard at it. , it seems to be going quite well. Matt im assuming that brexit wont affect aston martin as much as a bespoke carmaker in britain. People are going to want those cars. The china deal, i figure, may affect your business. Will you have to build an suv and focus more on electric cars for china . The answer is yes to both of those, based upon chinese regulation and chinese taste. Why we do very well as aston martin in china with sports cars, it is not a very big sports car market. We are close to being market leader. As you see, it is not a huge market. That transforms when you talk about suvs. That is a much bigger market. Still a developing market because luxury suvs are relatively immature as a product. When you talk about electric cars, this is a market that is really leading the world, and from the point of view of taxation, public interest, it is going to be important in the future to have an electric offering. In that context, aston will bring its First Electric car to market in 2019. Matt and could become the tesla killer. Aston martin can be a competitor to that company. You are already a competitor to ferrari. I mentioned those companies because they have incredibly high valuations. Isnt now the time to strike . Dont you want to get your ipo done now while the market is valuing these companies at 20 times earnings and more . I do agree that if you wanted to make a comparison around aston martin, you picked two of the three great proxies. I would add hermes as the Third Company that one should look at when you talk about ultraluxury. Tesla, that is, a good trilogy by which to compare us. For me, im concentrated on creating value in the company. Youve seen in our quarterly results, weve gone four quarters in a row with profitability, and very shortly we will be announcing fullyear results. The question of float, dont float, stay within the private as the manager of the business, i would certainly be fully involved in wherever that goes. That is really for the shareholders to decide. Matt thanks for your time. Look forward to seeing you in geneva in march. Aston martin ceo andy palmer joining us from beijing. Europes Biggest Oil Company has delivered fourthquarter earnings ahead of estimates. Shell reported adjusted profit of 4. 3 billion. Best profit in three years. Lets speak to the ceo of shell, ben van beurden. He joins us for his first interview of the day. A profit beat. Andme ask what led to this if you see those positive tailwinds Going Forward. Good morning, matt. Year,k it is a very good very good quarter. Basically, we saw improvements in all our main businesses. Altogether, the year has been transformative. Earnings close to 16 billion. I think we have shown that we have what it takes to be a worldclass investment case. We have been able to pay down our debt quite a bit. Im very confident that we can meet the commitments, the promises that we made for the end of the decade. Why the weaker than expected from the market cash flow generation, especially at 77 a barrel . And analyst says this could temper hopes for a buyback program. How do you answer to that . Ben we have some seasonality. It is not abnormal for our q4 to have some specials in it. You have to bear in mind that the runoff in oil price also results in a revaluation. If you add back the working capital changes, you get to about 8. 4 billion of cash in the quarter. The other thing that happened this quarter is that we paid significantly higher taxes. Part of it is because we made more profits, but also we had some one else in the context of settlements, etc. , which is good news, but nevertheless a higher cash tax bill. If you look at the differences between this quarter and last billioneres about 1. 6 more tax payments in this quarter. If you add that back, it is a very Strong Quarter from a cash perspective as well. Matt can you quantify the effects of the u. S. Tax reform bill . First of all, we have an taxct on the deferred assets on our balance sheet. As a result of that, we had to take an adjustment on our deferred tax assets. To our earnings. Going forward, it is very positive. The United States is the single biggest investment destination for the next few years. We are very well exposed to the United States. That investment is going to be doing well in a more advantageous tax environment. For us, there is a very significant upside. Matt let me ask you about the future of shell. You are already calling it a gas and oil company after the century of big oil. What is the next iteration of shell . Is it a technology company, a power company, a chemicals company, how do you see it . Ben why not all of the above . Shifted years, we have from an oilbased portfolio to a gasbased portfolio. On multiple measures, gas is bigger than oil. Of course we are more than oil and gas. We have a well performing and growing Chemicals Business. We see chemicals as a very advantaged segment. We are going to double our Chemicals Business in the next few years. Seeuld imagine that we will continued focus on doing so. Also, there is a Massive Energy transition on the way. What we have said, we are going to focus significantly more on what we call new energies. That is basically focusing on new types of fuels. Also focusing more on power. You have seen us making the initial moves in the last quarter. We are going to build up another value chain. We will have a much more future proofed portfolio, basically accessing brands that we are currently not accessing enough. We think the power of business is going to be the fastestgrowing segment and we need to be part of that as well. Matt when you talk about accessing, the head of bp says the world cannot produce all the remaining barrels of oil. Do you agree . Do you think your company is holding some stranded assets, so to speak . I dont think we hold stranded assets. I think the whole argument assets are those part of the resources that we keep on our Balance Sheets as reserves. Publish another report, which is going to demonstrate within the next 10 an assetso, we have base that is financially resilient. I dont see that things are going to play out to the extent that we have to take significant impairments on our oil or gas reserves or assets. We do think that oil demands will peak before supply will peak. Therefore we will have the need to adapt our portfolio to remain relevant. Matt thanks for your time. Really appreciate it. Ben van beurden, the ceo of shell, on his earnings. Unilever has reported earnings as well. Sales beat the average estimate. Speaking to bloomberg, the ceo discussed the company sick growth and future strategy. You might see that. Weve had a very strong volume component. Think, Going Forward, we ,robably will see our growth and that is how it should be. Be waivedrgin gains in the first half for the second half . More towards the second half. We will significantly spend behind these new initiatives. 2017 oncee seen in more is a very high quality of Earnings Growth. Gross margins up 40 basis points. Underlying operating margins up 110 basis points. We sold in a record cash flow. That is a new record for the company and significantly ahead of our own estimates. It is nearly a year since you promised increase profit for shareholders. How close are you . Year,ce my tenure, every we have increased our topline growth and our bottom line. Are giving we increased profits to shareholders. Nothing has changed that. What see here is a strong increase in operating profit. That really reflects the continuous work weve done to make this a better company. Just in the last two years alone, weve done about 20 acquisitions. These acquisitions are in the future growth area. That is increasingly starting to be reflected in our numbers. Do you see any more acquisitions for this year . Yesterday we announced a new ice cream acquisition in romania. We are very happy with acquisitions. These are acquisitions that appeal to millennials and are in the healthy, natural segment for the future. Are there any segments that you think you are not represented well enough . We need to continue to work. What we now see is the enormous pace of change not only driven by technology or other factors, but above all, consumers. You see the millennials going rapidly towards natural and organic, so we will accelerate there. When did you reach a decision on the headquarters . As we have said, we want to simply have it in one. Our headquarters structure is such that it is going to be fairly small. The decision has to be taken in the coming weeks. This year . We wont announce a timing, because we are carefully studying it. What is important is where we put the headquarters of our divisions. We are now a company with three divisions. That is really what is driving our business. So we can next act some guidance on it . We will continue to communicate with the market. Central bankers from the fed to the ecb are hoping for a pickup in inflation. You are on the front lines. Where do you see the next 12 months in terms of inflation . On an overall macro level, we see the Global Economy picking up a little bit. 0. 2 , 0. 3 . It is the first time that both the imf, the oecd, the world bank, come with figures that are more possible. Stronger growth in europe, but it is a very pleasant thing. Stronger growth in the u. S. The tax cuts that were recently announced will lift in the near term some of the global economies. That is a positive thing. Reasons fore good us. Thanks very much to the ceo of unilever, speaking there with annemarie. I want to give you a quick behind the scenes look at bloomberg television, kind of how we make the sausage here, while guy is away. I pulled up his launchpad screen. This is what we get a glance at. Weve got various assets. Weve got the indexes up top. The european indexes havent opened up yet. S p futures are up. Weve got currencies across this row here. The most interesting aspect of todays market so far, with the exception of the earnings from corporates, is what we see happening in rates. Here are the german bunds. You can see the spike up here. 2. 74 on 10year rates. Bunds going up to 71 basis points. That could change the way the market operates. It is one of the things that sparked the selloff in equities on monday. It is going to start looking attractive to investors. You are finally really getting some yield, especially from a riskfree asset like u. S. Treasuries. Keep your eye on that. The open of stock trading is coming in just four minutes time. This is bloomberg. Matt welcome back to Bloomberg Markets, this is the european open. We are less than one minute away from the start of stock trading in Great Britain and across the continental study currencies have been affecting the trade as of late. The euro, at a high level, a little over 1. 24. Oil down a little bit, 68. 88. That did not stop shelf beating estimates in the last quarter. The nikkei index showing gains. So, out of asia, we are getting a little bit of impetus, a little bit of a tailwind here. And the s p futures right now, showing slight gians. Just barely holding their heads above water. Thats kind of the set up. Take a look at futures. This is a percent this prize, indicating a positive open across europe, with the exception of italy. Even stockholm has risen to a gain as far as the futures are concerned. Lets look at the market open here with the monitor. The ftse gaining 0. 1 . The rest of these indexes will take quite a while to open up, especially the dax as i point out all the time, the ftse here turning slightly negative. Basically unchanged. You see an indication that we will get gains in the other index. Now the ftse is up as those trades get going. It takes a few minutes for Market Makers to open these stocks. The cac up 0. 5 in paris and the ibex up 0. 6 in madrid. We are starting to see real gains here across the continent. Were indicated to see the same kind of gains, same size on the dax and on the smi in switzerland. Watch for a green screen as far as this monitor is concerned. Were going to see a green screen as far as the imap is concerned. Lets look at the Industry Groups, which are gaining in which are losing. We really see gains across the board. Financial strong gainers, and that is a good sign obviously. We also see gains in energy and materials over here. Weve had a couplei of those companies out reporting today. I i. T. Is up. Industrials and health care, all up. Really all of the Industry Groups are gaining on the s p right now, which is why we see such healthy gains in the indexes. That is why you see 0. 5 to 0. 6 on the continental indexes. We are just trailing that a little bit over here in london. Lets look at the germanspeaking indexes, see if they have opened up yet. They are very exact, german speakers. That is why it takes them so long to get up and running. Also, they drink a lot of coffee. The ftse is up, zero point 1 . We still see gains at 0. 5 in 0. 75 on themost ibex. It is taking a little while for the dax to open, but you should see green there as well. Lets look at the move screen. It shows us which is stocks are gaining and the breadth of the market, as far as how many stocks are winners and how many are losers. The top, gaining 1 . We had earnings this morning from a number of these companies, roche thing one of them. Unilever as well. Boiled such shell as well. Commodity stocks are gaining. We have got as well, gains in some of the banks. Banco sant, hsbc, ander, showing gains. Lets take a look at the move screen, see which stocks are doing poorly. Royal dutch shell is one of those stocks. You also see glaxosmithkline glencore, as well as interestingly enough, even though material stocks are doing well. It is only down 0. 3 , but it is a fairly heavy stock, so it does the race some of the points from stoxx 600. Lets start deeper into the market open right now. Our bloomberg stocks reporter out of moscow joins us. What are the specific stories you are watching today . Is it really all about earnings . Reporter um, its about earnings. And always about forecasts for this year. Were always looking out for the future. Nokia, unfortunately, has been news today. The Network Business is set for another year of declines. It has really been trying to grab bag of the market share and unfortunately, so far because it is still working on the 5g network, demand for winter is supposed to pick up, 2019 to 2020, it is still struggling to pick up on that growth. Matt lets talk about novo nordisk. Yes, sorry. Lets talk about novo nordisk, they see 2018 profit stalling. We will speak to the ceo. Tell us about their earnings. Ksenia that is really interesting and is unfortunately, negative this morning. They have seen another year of lackluster growth. It is the biggest producer of diabetes medicine that has been under pressure because of lower drug prices in the u. S. And it is looking to acquire more drug makers. The drug was rebuffed by the arrival of sanofi. ,att lets talk about daimler not pleasing markets this morning . Also negative. It is all negative for me this morning. It missed estimates on rising costs. It is a mercedesbenz unit. Also, it is putting an enormous amount of money into developing electrical cars. Its competition in that business increases. Electrical cars, its all about that these days. Daimler is under pressure to put money into that, and thats where the costs are rising. Matt it is amazing how late to the game the incumbent carmakers have been on this issue. Lets talk about unilever. We spoke to the ceo just a minute ago. They say they are on track to meeting higher profitability goals in the wake of an unsolicited takeover approach, though struggling to raise prices. What is the story with the earnings there . Ksenia that is the one positive story this morning and i think you mentioned the stock is rising. For unilever it is not an easy time. It did rebuff an unsolicited takeover offer last year from kraft heinz. So, they have got to show the shareholders that they can do well. So far, from these results, it is doing a pretty good job. Matt the maker of the most important tea int he world. , thank you. Chko it all the latest stock stories by going to first on your bloomberg. Its also available to subscribers via the mobile app. So, check it out on your iphone or android phone. Still to come, we speak with novo nordisk ceo, as the drugmakers cfo and chairman step aside. This is bloomberg. Matt welcome back to the european open. You are looking at a shot of our new headquarters in the city of london. 10 minutes into the market open. Lets look at all the stock stories we have to deal with this morning. So much in terms of earnings out. For that we go over to nejra cehic. Nejra the enthusiasm for the unilever stock was shortlived. We saw a gain at the open, but free now trading much flat. This is after the company says they are on track to meeting profitability goals. That is not giving much of a lift to the shares at the moment. Novo nordiskfo than on the downside here. Four year ebit meeting estimates, but 2018 profits are stalling, 5. 8 lower is where we are on novo nordisk and shell also trading to the downside, down more than 1 . We did report the best profit in three years. It had improved production, that is what gave a lift to that product, but then trading fell short of expectations. The Oil Price Rally has been a double edged sword for shell. Overall investors are taking a negative view on it. Its down 1 . Matt i want to point out Something Else we have got to look at, in terms of shell. I just pulled up the ddis screen on my bloomberg. This is the data distribution screen on the bloomberg. You can see what shall has got in terms of outstanding debt. And you can see when it is coming due. The interesting thing here is shell is talking about reducing the companys debt. Is concerned,this they are heading in the right direction, but they are still sitting on a massive debt loa d, almost 60 billion in debt. That is a most three times what they had three years ago up 24 bglion in 2014, due to the acquisition that a lot of people on the street thought was overpriced. There are a lot of investors, or some at least, who are hoping for a buyback in the near term and they are concerned about the drop in cash flow. Maybe that is not going to happen. As a result, shell is the biggest loser on the stoxx 600 this morning. Coming up, after a bumper january, our stocks looking a little bit toppy . A question that we asked quite often, but that is because we are skeptical journalists. Treasury yields hitting 3 might be a problem for the market. Thats next. This is bloomberg. Matt welcome back to Bloomberg Markets. This is the european open. We are 15 minutes into the session. Take a look at the world map here. Quite a lot of green on the screen and we have got some pretty decent breadth as well this morning. 500 stocks on the stoxx 600 are gainers. Only 86 are losers. You can see strong gains on the iberian peninsula. Friends is up more than france is that more than 0. 5 . Little change on the island of Great Britain, though ireland is showing some gains. You see gains their moving solidly into russia as well. Tos bring in our guest now talk about just how expensive stocks are, or maybe they are not quite that expensive from all these gains weve seen. As european indexes are not highly valued, i should say, as u. S. Indexes. Do you think there is some money to be made here as compared to their, or do you see gains in both places . I think we see gains in both places, but europe has a lot of room to catch up. If you look at the Business Cycle, the u. S. Is closer to the late cycle. In our view, europe is late cycle. As a result, the ecb is still pouring in a lot of liquidity. The sooner we get out of negative Interest Rates, the better european banks should perform. It actually is positive for that interest market. Matt we saw that a couple days ago, the german fiveyear went positive for the first time in a while. The market is expecting that move, maybe a little bit sooner than they previously had. Kokou yes, though it took a bit of time and we had a bit of a dovish buy by mario draghi. Last but not least, the data in europe is very strong, even the periphery are essentially showing very strong signs of recovery. This is ultimately for us, the two years of outperformance and then we ultimately see the end of the Business Cycle around 2028, around which point we should have a correction and risky assets. Francine lets bring in dani burger, our markets reporter here at bloomberg. She will talk to us about the valuation, the price. Is this market looking expensive . Are stopped looking toppy . Dani one of the interesting things to throw into the mix is what is happening with treasuries. Two different asset classes, obviously. But rising yields have a big impact on how a lot of folks judge the pricing of u. S. Stocks. This is something called the fed model. Janet yellen might to use this. Essentially what this says is it is ok that stocks are trading at 20 times earnings because compared to rates, their price is still favorable. Matt, i brought this chart with me and you can see that right the earning 500, yield and the 10 year. That spread is the thinnest for quite some time. They have not converged yet. So, stocks are enjoying a better rate than the 10 year. As the tenyear approaches 3 , that valuation story is r uined by the rising yieldss. Matt what do you think about those rising yields, kokou . We see the 10 year continue to increase. Interesting is an point because if you look at the nominal bond yield, it is closer to nominal gdp growth. One of the reasons why this higher yield is picking up is because Earnings Growth is expected to pick up. The economy is also improving. The rising yield is ultimately a positive signal for equities, but there is a Tipping Point. When nominal bond yield reaches 5 or 6 , this is when inflation becomes that inflation for a company and eats into the profit margin and that is usually the end of the Business Cycle. Matt dani, thank you for joining us. Dani burger, our market reporter. Will stick with us. I want to get to novo nordisk. The cfo and chairman are stepping aside. Products phase competition and price pressure in the u. S. It is a familiar story in the industry this story. Joining us now from copenhagen is Lars Fruergaard jorgensen, the ceo of novo nordisk, for the first interview on the companys full year earnings. What do you expect for this year . Are you concerned about pricing pressures in the u. S. . Whats the main risk you are looking at . Lars im actually quite optimistic for 2018. We have guided the market and we inl see 2 to 5 growth topline. The key thing that came out is we see significant headwind for the u. S. Dollar, which has depreciated, taking our top line down by 7 and profit by 10 if the Current Exchange rates continue. So, the currency is actually the key for me now. Matt how do you expect that to pan out this year . Do you think the currency will continue being a problem in 2018 . What do you expect from the dollar . Lars i wish i knew. Comment on the development. We see a continued uptick in our marketshare as compared with 2017. Product is actually growing with new scripts in the u. S. We are launching in the u. S. Monday. We have a lot going for us in the diabetes space. Matt so, even if you take out the affected currencies, youve got a tailwind in the u. S. With the cash reform. Can you quantify the effect of the tax b ill on Novo Nordisks business . Lars yeah, we expect we will have a lowering of our tax rate affected taxan rate of 21 in the u. S. We are already investing in the u. S, building a plant in north carolina. We see a strong opportunity in the u. S. We are now investing on a lowered tax rate. Matt what else do you see coming out of the u. S. . President trump has made a lot of noise about Prescription Drug prices. Are you concerned that could be a headwind for you . Lars i think the rhetoric from trump in his state of the nation speech is similar to what we heard one year ago. I do not see a lot of change there. I do think there is need for reform in the u. S. Health care system. In particular, some of those patients faced with high deductible plans. We need to find ways to shoulder that. We are already beginning some initiatives, but we are looking to take care of more, allowing patients to have access to the rates we pay already. Matt why our list prices so high . What is the mechanics of the pricing of your products . So expensiveal that you need high prices . Lars if you look in the diabetes space, and the cost of treating diabetes, these are high priced products and we are investing 2 billion in the plant in north carolina. It should also be said that we pay significant rebates. You can see from our accounts, we paid on average 64 on our rebate. We target the net price after paying the 64 rebates. In the insurance space, the net pricing is going down and that is based on competition. I think the Market Forces are working in the u. S that is. Are working in the u. S. Taking the price down. Matt why didnt you win that fight . Lars well, when you have to look at the company, you have to evaluate, what is the value to you. It turned out that for sanofi, they could calculate a higher value. Sideoked at it from our and we are committed to do m a in the pharma space, but we will also stay disciplined to make sure our shareholders have a fair return. So, in this case, sanofi had the higher bid. I take knowledg i acknowledge that. We will be pleased to continue our partnership with sanofi. Matt what is your next step as far as m a . Do you need to find another target . Lars we have a list of opportunities. Potentially acquisitions, like most companies have. We will continue working on that and we hope during the First Six Months of 2018 we can land one of these deals. Obviously, it is a competitive space that is out there with high premiums being paid. We have to stay disciplined and how we lower value. But we are committed to working with this. Matt thank you for your time, lars. Lars Fruergaard Jorgensen there, the ceo of novo nordisk joining us from copenhagen. Janet yellen keeps rates unchanged in her last meeting, setting the stage for an increase in march. We have reaction, next. We already see it in the treasuries market. This is bloomberg. We use our phones and computers the same way these days. So why do we pay to have a phone connected when were already paying for internet . Shouldnt it all just be one thing . Thats why Xfinity Mobile comes with your internet. You can get 5 lines of talk and text included at no extra cost. So all you pay for is data. Choose by the gig or unlimited. And now, get a 200 prepaid card when you buy an iphone. Its a new kind of network designed to save you money. Call, visit, or go to xfnitymobile. Com. Matt we are 30 minutes into the trading day. Lets get the top headlines for you from the bloomberg. The yellen era ends. Now it is up to Jerome Powell to pull the trigger. How will he react to a potential increase in the budget deficit . Fourth quarter in the back. Yuna lee or sales beat unilver sales beat. Aston martin plans a fiveyear trade with an investment drive in china. The ceo tells bloomberg to expect an suv to hit the market in a year or so. At 30 minutes into the trade, how things are shaping up as far as the Industry Groups are concerned. I have the grr, the group ranked return screen here for the stoxx 600. Tech stocks are the outperform or for the day, as a group, 1. 2 . Financials are following closely behind. Utilities, food and beverage. But Financial Services and banks, really the winners of the day, along with tech stocks. A lot of people will point out we have a Smaller Group of tec h stocks. You have sap and some of the other big software makers. Lets go to the bloomberg first word news with sebastian salek. Sebastian Oil Production surged more than 10 billion barrels per day. This comes weeks after the National Energy agency said american output would push past russia this year. This has reversed decades of declining output and turning the nation into an exporter. The u. K. Prime minister has that they should stick to the original date of march 201 9. She argues there should be different rights for those who arrive after the brexit period. The government ended a tax break on certain equity investments. The budget shortfall will be on the air, wider than the 3. 2 target. She is cautiously optimistic about the ongoing nafta talks with the u. S. And mexico. Christian freeland made the comments during an exclusive interview with bloomberg. Significant differences remain. We have hard work ahead of us to bridge those differences. I believe it is absolutely possible. I think a winwinwin outcome can be achieved. Our approach in canada is hope for the best, prepare for the worst and we are doing both. Fivestar the movement is ahead in the polls and italy. The leaders have told bloomberg that people should not be concerned that a victory would lead to disruptions for the economy. We will not leave italy in chaos. We will make an appeal to other forces on issues. Less bureaucracy, lower taxes and investment in infrastructure. Sebastian global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. This is bloomberg. Matt sebastian, thank you very much. In the last policy meeting under chair yellen, the Federal Reserve cap Interest Rates on hold and paved the way for a march hike. The u. S. Central bank says gains and employment and business fixed investment have been solid. It also upgraded the outlook for inflation. The market now sees a march move as a near certainty with fed funds futures indicating a 99 chance of a hike following the latest decision some heavy hitters weighed in. We are dealing with a fiscally unstable longterm outlook, in which inflation will take hold. The breakout will be on inflation upside. The real challenge Going Forward is, the Federal Reserve is tightening and easing up on the Monetary Policy in two ways. That is one, three rate hikes. But also, they are shrinking the balance sheet. That will get more and more complicated. The deficit is moving up to close to 1 trillion. That is because basically, the fed itself is reducing the balance sheet. I wonder who will buy the current level of bonds. I think there are two levels. We have a stock market bubble and a bond bubble. At the end of the day, the bond market bubble will eventually be the critical issue. But for the shortterm, it is not too bad. Matt alright, kokou agbobloua of socgen joins us to discuss that and other things. Let me first ask you about the fed. Is it setting up to be more hawkish than the market originally expected . Unemployment is below. One other thing is we have not had inflation for a while, but the trigger could be the tax reform, which will act as a fiscal stimulus. From a fed perspective, you are starting to see signs of announcing bonuses and jpmorgan announcing salary increases. If we get to the Tipping Point with more wage increases, the fed will have no choice but to be more hawkish, to prevent inflation from going out of hand. Matt we have had a ton of Companies Come out with wage increases or bonuses. You mentioned a couple, also telecom, comcast, apple, among others. Do you expect the tax reform to make a real impact on inflation on growth . Kokou the impact should not be that significant. That being said, it is reaching 1 trillion over the next 10 years. We could see increased deficit. And the current account deficit is also weighing on the dollar. It will definitely have an impact. The question is how the market will process that impact and if it will push yields much higher from here, forcing tightening at a faster pace . Matt what do you forecast . Toou we are roughly at 2. 8 2018. Y the end of we have got to remember one important phenomenon, the buyback phenomenon that has been supporting u. S. Equities up until now. One other thing to remember is a buyback is earnings lucrative if the earning is above the tax of borrowing. We think around 27 times earnings is where a buyback becomes less earnings lucrative and the corporate buyback could put pressure on the equity market. I mean,ou expect a lot of people have compared the tax reform to a qe4. Will financial conditions ease even as the fed raises rates . Kokou i think it is more accurate to compare it to a fiscal easing by the government as opposed to the central bank. It will provide the opportunity for a boost when it comes to Consumer Spending and also capex and investment. If Companies Use the tax benefit to do more of the same thing, share buybacks. Matt we have seen the oil up with rise, shale today beating expectations. Just now, Goldman Sachs raising the sixmonth brent crude barrel. To 82. 50 per do you think this could add as a headwind for the u. S. Economy . Areu well, i think they symptoms of what the market is pricing in. Ultimately, it will be positive to create asset price inflation, as we have seen so far. Ultimately, it moves up as we get into the Business Cycle. One thing to bear in mind, we are roughly 80 to 90 through the Business Cycle it has been one of the longest in history. We see all the stars lining up for the end of the Business Cycle by 2019 to 2020. I think people should get prepared for more volatility and higher bond yields and also for equity to pick up in sort of six to 12 months. Muncie the s pll 500 continue to gain 20 a year . See the s pl not 500 continue to gain 20 a year . At what point do you think u. S. Stocks are overvalued . Kokou this is a brilliant question. You have investors looking at the valuation, but you also have companies. The biggest buyers of equities have been companies themselves. You have to ask the question, at which point to buybacks stop being lucrative for companies . If you do the numbers come you get Something Like 27 times earnings for a buy back to create profit for corporate. Until then, companies will continue to buy their own stock and push valuations higher. Matt 27 times earnings seems pretty steep, but youhave to look at it from a british investors point of view and a european investors point of view, in pound or euro terms. That means the dollars value will be important. We have seen a threeyear low on the bloomberg dollar index. Does that continue . Kokou the dollars situation is a current account surplus for the eurozone, which pushed the euro higher. The cardica deficit for the u. S. The current account deficit for the u. S. Put pressure on the dollar. In risk on years people tend to sell the dollar as a founding currency. This is consistent with an expansionary phase. If the fed were to raise rates faster, we could see the Interest Rate pressure forcing the dollar higher from here. Last but not least, the equity valuation argument have got to be compared with the credit valuation and the bond valuation. Areitalian treasurys Something Like 80 to 90 times earnings. Thank you for that, very cool stuff. Kokou agbobloua from socgen. Remember, if you are a bloomberg customer, you can watch the show using tv. You can also follow all the charts and functions on the righthand side of the screen. You can message as directly using the i. B. Function. You can message me, you can message guy. You will see a small blue link there. You can message our producers as well. Bitcoin had the worst month in the history of digital currencies. Has the cryptocurrency bubble burst . Well discuss. This is bloomberg. Matt gorgeous shot of our new staircase here in the city of london. Welcome back to the european open. We are 45 minutes into the trading day here. A very bullish day for equities. If you are long on european stocks, you have got to be happy. Great breadth today, 500 stocks up on the stoxx 600. Bitcoins big wideout in january, it knocked 42. 4 billion off the Global Market cap. Look at this chart i just pulled up. You can pull it up if you have a bloomberg screen as well. A series of regulatory setbacks has shaken bitcoin and rival cryptocurrencies as well, like even ethereum. Us, reallyjoinging exciting to have you here. Let me first ask what you make of this crash. Its been a tough month for bitcoin, still up 1000 over the last 13 months, but it is often half during the last four weeks. Whats going on . I think we are seeing growing pains. He referred to regulatory setbacks, but i think these are regulatory pains Going Forward. This did have a hit on bitcoin. The Regulatory Environment is one with few signs for the correction. I see it as a healthy correction. Fyptocurrencies are not or Money Laundering or illicit use. They are a step in the right direction. I still have a lon bullish longterm view on cryptocurrencies as well. But it has to be done right. Matt i have always found it interesting when people talk about bitcoin as a tool for Money Laundering or illicit use. It is traceable, so it does not make a lot of sense to me, but i will put you in the role of a hacker. Who managedsomebody to steal millions of dollars of bitcoin, how would you get it out of the system without being followed. Oliver i dont think you can. I think bitcoin is a terrible choice if that is the sort of thing you wanted to do. A client of mine had bitcoin stolen and it was very easy to trace. It is a terrible choice for the Ransomware Attack because those could all be traced along the blockchain. There are other cryptocurrencies which are set up to be more , like monero. Bitcoin does not have a future in Money Laundering for this reason. Areon ramps and offramps the key reasons. How will they convert that into something usable . They will need in offramp like an exchange. Now that regulation is stepping up and they are locking down on having the proper thatlaundering controls, will dwindle. Matt the recent theft we saw sometimes people use shape shifter. We saw them automatically block that. Another problem with bitcoin that is real, the transaction cost. And also the transaction speed. This is one of the things touted to be the benefit of cryptocurrencies at the start. Other cryptos do it better, but how do you think bitcoin will deal with this issue . Oliver bitcoin will continue to evolve, but it will evolve slowly. Bitcoin itself uses this as a cate of asset to indid stability and resilience. The mosthin lks doesul bitcoin fo address this issue to some extent. Whether there is a longterm future or not remains to be seen, as in all cryptocurrencies, but it does do it faster, cheaper and is better suited to transactional activity than bitcoin is, which is more suitable as a store of value. Matt a couple of years ago i lived on bitcoin for two weeks. I did not spend any u. S. Dollars. I found it not easy, but possible. I found a supermarket in brooklyn that accepted it and i found a bar downtown. Transaction costs were not so high, so i could easily buy a beer and fill up my tank. But you cant use it in a regular way in any city outside of austin, texas. When do you think we will see people transact on cryptos . Oliver we have got to see bitcoin grow up and be more liquid in the transactional space. Lightning is one way they are addressing that. We need to address two parts of the value chain here. The technology itself, which we have discussed. The other side is enabling merchants to be equipped to do this, meaning have a point of sale, a Regulatory Environment that supports it, and the tax and the National Infrastructure you need for regular business. Two are evolving side by side. In south africa, there is a very exciting project. They have a major effort in enabling merchants. Matt one final question on bro, on your exchange. I found bitcoin was difficult to buy i cannot remember what exchange are used. I do know i lost the password in my wallet. What do you do to make it as easy as say a transaction on amazon or ebay. Oliver it is a tradeoff between doing it safely and quickly. If you want to do it quickly, you can shortcut the onboarding process, but if you want to do it safely, you still have that upfront lag. The answer is not clear to me, but theres a lot of exciting innovation in this space. Matt thank you so much for joining us. I really appreciate your time. Obviously, it is one of my favorite topics to discuss. We have some breaking econ news now. The pmis coming out of france, the manufacturing pmi coming in at 58. 4. The estimate was for 58. 1, so its doing better than expected and that really continues the trend that we are seeing in pmis across europe in the market. Now, well take a quick break on Bloomberg Markets. When we come back, well talk about the stock Market Movers an hour into the session. Matt welcome back to Bloomberg Markets the european open. Lets get your midcap movers with nejra cehic. Nejra we have a Third Quarter trading up today, Group Revenue up 3 , but my the revenue down 9 on subdued volatility. Overall, the market taking it positively. On the downside, im looking at the Telecom Company tdc, agreeing to purchase modern 2. 84 million dollars. So, following the news. Finally bic, four year sales, 1. 9 below estimates. Analysts expressed disappointment with the organic sales output. Matt thank you, nejra. I wanted to point out to our viewers that we have german cmi numbers out, 61. 1 was that reading and 61. 2 was the estimate. I want to give you the stock of the hour. That stock is race, the ticker for ferrari. Whether you are looking at the italian stock or the u. S. Stocks. Ferrari is coming up with fourthquarter earnings a little bit later on, before the opening bell in the u. S. It is trading at 17. 4 times earnings. This is bloomberg. Francine the fed it keeps rates on hold, but sets the stage for a hike in march. Goldman sachs predicts a pullback in global stocks. We talked to peter oppenhei mer. Cutbook says that they have the amount of time that users spend on it. Francine good morning everyone and welcome to bloomberg su
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